Yes, Some Brands Still Matter, But Consumers Are Looking to Trade Down

Private label sales are increasing every quarter, but national brands dominate some categories. That could change as more retailers experiment with new private-label products. With private-label products, sale volume, in units, may decline, but profitability may increase substantially.

78% of retailers show a loss in dollar market share when private-label gains unit share, which was a recent data point in an Acosta presentation. That is probably one of the dumbest callouts I’ve ever seen. Of course, the dollar share is going to decline. Private-label products sell for much less than national brands, so it stands to reason that dollar sales would decline while profitability would increase.

Despite all the negative news about the economy, there is plenty of good news.

Workers’ buying power has increased each month since May 2023 (pay exceeding inflation rate)

Food price inflation appears to have stabilized near rates observed before the pandemic.

• While economic growth has moderated slightly, the labor market remains resilient, with an unemployment rate below 4% for the 26th consecutive month, the longest streak since the 1960s

• According to GasBuddy, U.S. gas prices have started to cool, with more relief coming in the weeks ahead and little worry that prices will skyrocket

Source: CNBC; Forbes; nerd wallet; foxweather.com; US Conference

Despite the positive news, shoppers are interested in one thing: lower prices. Most consumers are willing to trade off top brands for cheaper private-label products. Still, those private-label products HAVE to be superior to the national brands in everything from packaging to performance. Buying store brands has become habitual for over 40% of grocery shoppers, with 7-In-10 saying store brands are in their cart all or most of the time.

While brands still appeal to shoppers, consumers are experiencing tension between price sensitivity and brand loyalty. 63% think most store brands are as good as big-name national brands.

Does this mean national brands are dying? No, not at all. National brand sales still tower over private-label in units but only for some categories like coffee, toothpaste, and toilet paper. Still, it may be time before store brands enter those categories.

The data tells us that lower-income consumers are already starting to feel the effects of inflation and are cutting back. I believe this will spread to all income categories. Data also tells us that consumers making more than $250,000 annually seek bargains and ways to save money. Brands that continually raise prices to increase profits may be in for a rude wake-up call.

Too many brands believe their bullshit around brand equity. With consumers angry at inflation, that would be a huge mistake; Walmart just announced a more significant dive into private-label, and Target already has some premium private-label products.

In the end prices do matter.

About richmeyer

Rich is a passionate marketer who is able to quickly understand what turns a prospect into a customer. He challenges the status quo and always asks "what can we do better"? He knows how to take analytics and turn them into opportunities and he is a great communicator.

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